McCormick (NYSE:MKC) Is Paying Out A Larger Dividend Than Last Year
McCormick & Company, Incorporated's (NYSE:MKC) dividend will be increasing to US$0.37 on 10th of January. Despite this raise, the dividend yield of 1.6% is only a modest boost to shareholder returns.
See our latest analysis for McCormick
McCormick's Earnings Easily Cover the Distributions
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. The last dividend was quite comfortably covered by McCormick's earnings, but it was a bit tighter on the cash flow front. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing the business.
The next year is set to see EPS grow by 6.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 50%, which is in the range that makes us comfortable with the sustainability of the dividend.
McCormick Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from US$0.56 in 2011 to the most recent annual payment of US$1.48. This means that it has been growing its distributions at 10% per annum over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.
We Could See McCormick's Dividend Growing
The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that McCormick has grown earnings per share at 9.2% per year over the past five years. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.
In Summary
Overall, this is a reasonable dividend, and it being raised is an added bonus. On the plus side, the dividend looks sustainable by most measures but it is let down by the lack of cash flows. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for McCormick that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
